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(Telegraph) – BANK PERSONAL LOAN RATES have climbed to a nine-year high due to a rise in borrowers failing to meet their repayments.

Experts said banks are increasing rates to recoup the losses stemming from loan defaults.

Rising unemployment during the recession saw households struggling to meet the repayments on their loans.

The best rate currently available on a three year loan of £5,000 is almost 9 per cent – or nearly £160 – a month, according to personal finance website Moneyfacts.

It is in sharp contrast to rates of almost half that amount before the beginning of the credit crisis in 2007.

The rise comes despite the Bank of England keeping interest rates at a historic low of 0.5 per cent for the past year.

Rates were last at their current level nine years ago when the Bank Rate was a much higher 6 per cent, meaning banks have significantly increased their profit margins on personal loans.

Michelle Slade, a spokesman for Moneyfacts.co.uk said: “Unlike on a mortgage, there is no security that a personal loan debt will be repaid.

“In such a risk adverse market, lenders are only offering loans to the most creditworthy applicants and then at a premium.”

She added: “The post-Christmas loan sales that we see each January did not materialise, a further indication that lenders do not want to encourage unsecured lending.”

“Unemployment remains high and when people are struggling to meet repayments, unsecured lending is one of the first debts they stop repaying.”

Alliance & Leicester is currently offering the best deal on a three year £5,000 loan at a rate of 8.9 per cent, with monthly repayments of £157.97, while the best rate four years ago was 5.7 per cent, according to Moneyfacts. The rate was 9.4 per cent in January 2001.

Andrew Hagger of personal finance website Moneynet.co.uk said: “The risk of defaults is higher in the current economic climate, and with banks making such ultra thin margins, the rates offered a few years ago were not sustainable with any defaults soon wiping out the profit margin on the loan itself.”